Planning for Inheritance Tax
Why do I need to think about inheritance tax?
If the value of your estate is over £325,000 when you pass away, you will be required to pay inheritance tax amounting to 40% of any money over the tax threshold. If you are a married person then this allowance can pass in full to the spouse on first death effectively doubling it. If you a person with children then you may also be eligible for the new residential nil rate band. This is £175,000 per person in addition to the standard nil rate band.
If you’re planning to pass money or assets on to your loved ones, this can mean that they receive significantly less than you would have liked them to receive.
“Nicola patiently took us through all of the details and explained and answered my many questions.”
Rebecca Taylor (Easton)
There are several ways to reduce the size of your estate before your passing, which will in turn reduce the amount of inheritance tax you have to pay, leaving more for beneficiaries. For this reason, choosing to work with an expert in inheritance tax and end-of-life financial planning can result in some significant savings.
How can I reduce my inheritance tax?
- Making gifts during your lifetime is one smart way to reduce the amount of inheritance tax you will owe. Gifts made while you are still alive are exempt from inheritance tax, providing that they are gifted a minimum of seven years before death. For this reason, it is wise to arrange for important gifts to be made within your lifetime – this will help to reduce the amount of inheritance tax payable when you die.
- You can also make use of section 19 of the Inheritance Tax Act 1984, which states that you can transfer money or gifts up to the value of £3,000 each tax year without incurring tax payments. By transferring money into a trust for your children or grandchildren annually, you will reduce the size of your estate and therefore the amount of inheritance tax that will be owed.
- Gifts to charities, museums, politic parties, universities and community amateur sports clubs are also exempt from inheritance tax. Furthermore, if 10% or more of the value of your estate is left to a charity, your estate will pay inheritance tax at a reduced rate of 36% on certain assets – this can result in some impressive savings overall.
- Other exemptions include gifts to people getting married. These are tax free up to £5,000 from each parent of the married couple, up to £2,500 from grandparents, £2,500 from partner to partner, and £1,000 from anyone else.
These are just some of the ways you can reduce the amount of inheritance tax your estate will have to pay when you die. At Richardson’s Wills, we work in association with specialist financial planners, so you can be assured of the best possible advice when it comes to planning for inheritance tax.
To arrange a friendly and free consultation, get in touch today.